Should I Hire Full-time or work with a Freelancer for my Marketing Agency?
Read time: 15 minutes
Even before the global COVID-19 pandemic throughout 2020 and 2021, remote working and freelancing trends have rapidly gained traction.
Yet, it’s also no secret that the global pandemic events in the past couple of years have accelerated the change in how people work and how businesses hire workers.
Not to mention, it’s also much easier and safer for companies to connect with and hire freelancers nowadays, thanks to platforms like Freelancer, Upwork, and Fiverr, among others.
With that being said, should your marketing agency hire full-time workers or work with freelancers? Which option will be more cost-effective for your marketing agency? How can you better manage your freelance and/or remote workers?
In this guide, we’ll answer those questions and discuss all you need to know about freelance vs. full-time workers in a marketing agency environment.
By the end of this article, you’d have learned about:
- All you need to know about freelancers and freelancing
- Cost to hire in-house vs. work with freelancers
- Key differences between freelancers and full-time employees
- Key considerations for marketing agencies when weighing between the two options
Without further ado, let us begin this guide right away with the basics.
Freelancer: The Definition
What is the official definition of a “freelancer?”
According to the Mirriam-Webster dictionary, a freelancer is “a person who acts independently without being affiliated with or authorized by an organization.”
Yet, how would we define the “independence” of employees?
Understanding the definition of independence is not only important for your business but will also affect whether the IRS will classify a specific employee as a freelancer or a full-time employee, which may cause you, as the employer, to be liable to pay benefits and taxes.
Here are the three crucial factors to consider:
- Expenses: freelancers typically don’t have reimbursed expenses
- Employer’s investment: if the employer offers significant investments in equipment and tools for the employee to complete their task, the employee may be considered full-time.
- Freelancer’s availability: the freelancer must be free to advertise their service to other employers.
- Possibility of loss: the possibility of a loss is a strong indicator that the employee is a freelancer
- Regularity of payment: there is no guarantee of a set amount of regular wage for freelancers
According to the IRS, an employee may be considered independent due to the following behavioral factors:
- Training: if you provide freelancers with training on how to complete the task you’re asking them to do in a specific way, the IRS may classify this as a traditional employee-employer relationship
- Instructions: how strict are the instructions regarding where, when, and how the freelancer must work, and how much control the employer has over these instructions.
- Evaluation systems: according to the IRS, if an evaluation system is established to measure the details of how an employee’s work is performed, then the employee can be considered a full-time employee.
- Benefits: insurance, paid vacation, sick leaves, and other employee benefits shouldn’t be given to freelancers
- Written contracts: it’s best to state the employee’s status as a freelancer or full-timer clearly in the written contract. For freelancers, contracts shouldn’t be permanent, and the contract’s termination terms should be specified (i.e., completion of a project.)
Full-Time vs. Freelancers: Key Differences
To summarize the factors we’ve discussed above, here are the key differences between a full-time employee and a freelancer:
1. Payment Agreements
A freelancer sets their rates and pricing model (per project, hourly rate, per task, etc.), and these rates may vary for different services they provide.
There are many cases when an employer has to pay a freelancer a higher overall pay than they would a full-time worker, but only when the service of the freelancer is required. On the other hand, a full-time employee must be paid consistently with the amount negotiated at the start of the contract, even during slower times when they aren’t required to perform any job.
2. Tax and Benefit Responsibility
Freelancers are responsible for paying their own self-employment and income taxes. On the other hand, employers are responsible for their full-time employee’s tax payments.
Employers are also responsible for paying full-time employees’ benefits like sick days, vacation allowance, medical insurance, paid maternity leave, and retirement benefits, among others. On the other hand, freelancers must pay for their own benefits.
3. Work Hours
Probably the most important distinction between full-time employees and freelancers is their work hours.
Full-time employees must work during the hours set by the employer (i.e., the traditional 9 to 5), while freelancers can have flexible work hours regulated with objectives/milestones and deadlines.
Full-time employees are hired for a more permanent (long-term) position and typically have better job stability and security.
On the other hand, freelancers are typically hired only for a limited, specific period. Usually, the employer and a freelancer will sign a written contract stating the conditions of the work agreement. Once this condition has been fulfilled, the freelancer technically stops working for this specific employer until another contractual agreement is made.
Costs of Hiring: Freelancer vs. In-house Employee
One of the main considerations when weighing between hiring a full-time employee or a freelancer is cost, but quantifying the total costs of hiring the two can be quite difficult in practice.
However, typically the cost of hiring a freelancer is much simpler: you either need to pay the freelancer at an hourly rate or a set per-project/per-task fee.
For full-time employees, however, there are typically multiple expenses an employer is responsible for, including but not limited to:
- Insurance (health, dental, life, etc.)
- Paid leave (i.e., sick days, paid maternity leave)
- Workers’ compensation (and unemployment benefits)
- Retirement account matching
With that being said, while the hourly rate of a freelancer is typically higher than a full-time employee, in practice, the total cost of hiring the full-time employee can be significantly higher.
The actual cost of hiring a freelancer
Compensating a freelancer is typically much simpler than that of a full-time employee: you pay an established set fee agreed upon beforehand (i.e., per-project fee) or calculate the total billable hour and pay an hourly rate.
Freelancers are technically self-employed, and most of them will set their own rates or, sometimes, dictated by the platform on which they advertise their services (i.e., Upwork or Freelancer.com.)
Therefore, being independent, self-employed professionals, they are also responsible for paying benefits, taxes, and other overhead expenses. This is also why a freelancer typically charges a relatively higher hourly rate (or per-project rate.
With that being said, the cost of hiring a freelancer is much more transparent and predictable, and typically the total expenses are lower than a comparable full-time employee.
The actual cost of hiring a full-time employee
As discussed, the total cost of employment for a full-time employee is typically more complex than that of a freelancer, and we have to consider many different components than their salary or hourly pay rates.
In general, the actual cost of a full-time employee is typically 25% to 40 % higher than the employee’s initial salary (which is a substantial difference) due to additional costs like tax obligations, insurance, benefits, bonuses, and others.
Here are some expense elements that an employee is typically responsible for paying when hiring a full-time employee:
In most locations in the US and many other countries, employers are responsible for purchasing workers’ compensation insurance, which will act as a protection for the employee when they experience injury (and are unable to work) on the job.
Different states may also legally require employers to purchase additional insurance policies, which may add up to the overall costs.
Depending on your business model and other factors, the employer may reward the full-time employee with bonuses (i.e., quarterly, annually, for a successful milestone, etc.)
When an employer hires a full-time employee, it’s assuming the Responsibility of paying federal taxes associated with the full-time employment arrangement.
The employer may also be responsible for paying state payroll taxes for each employee.
Recruitment Costs: Full-Time Employees vs. Freelancers
On top of the ongoing costs of working with freelancers or keeping in-house employees, employers should also consider the upfront recruitment expenses for both.
Freelancer recruitment costs
Typically an employer wouldn’t need to invest in training, equipment/tools, or other upfront expenses when working with a skilled/experienced freelancer.
On the other hand, platforms like Upwork or Fiverr have also lowered the overall costs of finding and recruiting skilled freelancer talents.
Since experienced freelancers can get to work right away without high hiring costs, this can also contribute to the overall higher ROI.
Full-time employee recruitment costs
While the actual recruitment process can vary, and the hiring costs can also vary between industries, here are the most common hiring expenses in most fields:
- HR costs:
- Internal HR team’s labor cost
- Time of HR team conducting interviews
- Job board and recruiting platform fees
- Background checks, medical tests, and drug screening costs
- Tools/equipment costs:
- Equipment costs
- New accounts/licenses for required software solutions
- Deferred productivity costs:
- Reduced team/department productivity while the new employee learns the ropes
- Training costs:
- Costs of training new hires
- Costs of purchasing training programs/software solutions/equipment for training new employees
As we can see, the overall recruitment costs can also be substantially higher in hiring full-time employees.
Example Cost Estimation: Freelancer vs. Full-Time Employees
Above, we have described the expense elements you’d need to consider when hiring full-time employees or working with freelancers.
Yet, if your marketing agency wants to really maximize ROI, it’s best to perform a thorough cost estimation of a full-time employee relative to a comparable freelancer capable of performing the same job.
Below, we’ll share a basic formula for comparing the cost of hiring a freelancer and a full-time employee:
- Get the hourly rates from the freelancer you’d like to hire.
- Decide on the annual salary you are willing to pay a full-time employee
- Multiply this annual salary amount by 1.325. According to the Small Business Administration, the real cost of a full-time employee is between 25% and 40% higher than the annual salary, so we take 32.5% (hence, 1.325) as an average.
- Divide the result by 1.800. According to a recent study in 2021, the average number of hours worked by employees in the US is 1,801.
- Compare the hourly rates between the two.
Let’s use an example to further explain this formula. Assume you are going to compare the cost of hiring a full-time graphic designer or working with an experienced freelancer. Following the above formula:
- Assume you’ve found a freelance graphic designer with the right qualification that charges $ 35/hour.
- According to the BLS, the median annual pay for a graphic designer is $ 50,710/year.
- Multiplied by 1.325, we get $ 67.190/year.
- Divided by 1,800 hours, we get $37.327/hour.
- The calculated hourly rate for the full-time graphic designer was $37.327/hour, while the hourly rate charged by the freelancer was $ 35/hour. In other words, the freelancer would save you $2.327 for every hour of work.
If you’d like to calculate how much you can save in a year, simply multiply the difference by 1,800 (the average number of hours worked each year.) In this example, you get $4,188.6 in annual savings.
Hiring Freelancers or Full-Time Employers: Pros and Cons
Here are the key pros of working with a freelancer compared to hiring a full-time employee for your marketing agency:
Pros of working with freelancers
- Lower costs: as we’ve discussed above, the overall costs of working with a freelancer are typically lower than hiring a comparable full-time employee for your marketing agency. Not to mention, if you have more freelancers than in-house employees, you can also reduce the size of your office (or eliminate the need for an office altogether), lowering the costs of running and maintaining an office.
- Faster and easier recruitment: nowadays, there are many platforms and marketplaces that make it very easy for marketing agencies to find ideal freelancers to work with. With the faster, easier, and more secure process, marketing agencies can reduce recruitment costs.
- Higher quality: freelancing is competitive, and if freelancers don’t deliver high-quality jobs immediately without training provided by the employer, they won’t be able to retain their clients. Employers also have more flexibility in choosing and retaining freelancers as they see fit.
- Lower overall risk: most employers hire freelancers on a per-project basis, so when a freelancer delivers an unsatisfactory level of work, the employer can simply terminate or not renew the contract. On the other hand, the employer may get stuck with an employee even if things go wrong due to the longer-term contract.
Pros of hiring full-time employees
- More control and easier management: while hiring freelancers should help employers reduce costs, managing them in their day-to-day work can be more challenging, and when they are not managed efficiently, you may lose money instead. On the other hand, managing an in-house team is typically easier due to face-to-face interactions and hands-on management.
- Lower infrastructure costs: depending on your industry and business model, proper management of freelance workers may also require that you invest in a proper team management solution, as well as other infrastructures. Investing in a cost-effective agency management solution like Function Point, capable of managing remote teams and freelancers, can be a solution for this issue. In managing in-house teams, however, we can potentially eliminate the need for various technological solutions and infrastructure.
- Company culture: developing a company culture is easier with full-time employees due to face-to-face supervision and interactions. Freelancers, even if they have worked with you for a long time, are not likely to be vested in your business’s success, and it’s common for them to work with other clients. Full-time employees are typically more likely to commit to your company culture.
- Predictability: full-time employees are available for work within a specific period of time as instructed by the company, which is typically not the case for freelancers. Meaning, that freelancers may not always be available when you need them, and you may need to have backups when they are unresponsive during emergencies.
When Should Your Marketing Agency Hire a Freelancer
While hiring a freelancer is typically the more cost-effective option, sometimes budget is not the biggest concern, and a company simply wants a more hands-on approach with their employees.
Is working with a freelancer the right option for your marketing agency? Here are some signs you should pay attention to:
- The task that needs to be completed doesn’t need to be completed in-house during direct supervision. In this scenario, hiring a freelancer can help you save money on office space.
- You need immediate expertise but don’t have the budget to hire an experienced in-house employee. In such cases, it’s typically cheaper to work with an experienced, highly skilled talent in a freelancing arrangement.
- You have a short-term need. If, for example, you have a one-time task that needs to be accomplished, it’s better to hire a freelancer to do the job rather than invest in a full-time employee.
- You already have an in-house team, but at the moment, they still lack the expertise to finish a required job (or jobs.) In such cases, hiring an experienced freelancer to support your in-house team can be a viable, cost-effective option.
When Should Your Marketing Agency Hire a Full-Time Employee
While working with freelancers does offer its perks, there are situations in which hiring full-time employees and maintaining an in-house team can be a better idea.
Here are some of them:
- For critical tasks in your company that need to be performed on a day-to-day basis, it’s typically better to hire full-time employees to do the job so you can maintain better control.
- Fairly obvious, but for jobs that require direct interactions with clients, then full-time employees are typically the better option.
- If you are looking to develop and establish a company culture in your marketing agency, it’s better to invest in an in-house team.
- If your marketing agency handles or stores clients’ sensitive information or user data, it’s best to maintain an in-house team so you can ensure data security since you’ll naturally have greater control.
Every marketing agency is unique, and depending on the client you are handling or the specific job you’re facing, there is no one-size-fits-all answer to whether you should hire a full-time employee or a freelancer to accomplish the task.
However, the actionable tips we’ve shared above should be able to help you in making a better-informed decision for your agency’s current needs.